quote:

Originally posted by Astrochump:
I hate to say this, but saying that there is no financial crisis right now is just plain stupid.

It's not simple as turning off your TV and making it all go away. Anybody with stock in AIG, WaMu, or any of the other financial institutions that have gone belly up over the past 6 months knows that.

I'm all for having a positive outlook, but to say that the current financial mess is fictional and only a product of media manipulation is just plain delusional.

Not at all. Its the financial sector which is hurting. You aren't seeing massive layoffs, despite talks of a credit crunch, there hasn't been a tightening of credit to business.

WaMu died, JP Morgan purchased it for a song. Double entry bookkeeping. One side lost, one side gained. Buyers and sellers. None of the companies which are going out of business are being totally dissolved. Their assets get sold off to other companies which then pick up the pieces.

I'm far more concerned about $700 billion which is all going to eventually be monetized and hurt the value of the dollar even more.

If I was planning on traveling, I'd open up a bank account overseas, or at least in Canada and put at least some of your money in another currency as a hedge against the dollar falling even more.

Ciao from Washington!

Max,

Other than wishing for my early demise, I thank you for taking the time to write and give your perspective. It's refreshing to hear something other than doom and gloom and I sincerely hope that you are right.

Also.. Um... Maybe I should also mention that not everybody is a financial expert and those of us who aren't are feeling the pinch. Home values are down, income is stagnant, the cost of living is rising and that's not a media fabrication.

Caesar,

Thanks for the advice. Awhile back I opened up an account in both Canadian dollars and Euros and have been putting money away there to hedge against dollar collapse. Regarding the $700 billion dollar bailout, I consider that a crime against the country. Let's hope it doesn't pass.

Everybody else,

Thanks for all the responses to the poll question, they are much appreciated.

Allo from London!

Astro,

Thanks for the reply... I hope that you took the part about your government pension going to the rest of us as a light-hearted joke and not an ill-willed comment.

Its true that people will be feeling a pinch, and I have acknowledge the fact that not everyone has made decent financial decisions.

Nice comment about the bailout being a crime against the country. I agree to an extent. It is a crime against capitalism. Its a tough decision but I think it has to be done... Massive bailouts have been done before, not exactly at this magnitude but sometimes they are a necessity.

This is basically every American paying for some companies mistakes. But... the mistakes they made were so huge and so grave that if these companies collapse it could cause everyone to lose their jobs and the entire financial system to feel huge reprocussions. The Great Depression may just be cyclical, and it feels like it might be time for another one. The bailout is basically a social manuever to curtail greed and even out the capitalism with a bit of socialism. Both of these "isms" in its purest form seem to have huge negative effects on any economic structure. It is good to have a mix of these two in order to balance out the giant monolithic system we use to supply our now ultra luxurious and overwhelmingly needy lives.

I would bet that the worst thing to happen would be that people have to start living simple lives again for awhile. This means no ultra luxurious items that we have been accustomed to, and a return to traditional means of livelihood. But the likelihood of this happening is almost null in my humble opinion.

Though I do believe that if we continue to make bad decisions we may have to endure a pain greater than this proposed financial meltdown. However revolutions from cyclical recessionary patterns have proven to be quite logaritmic in a historical context. And sometimes it is asbolutely neccessary to awake from our gluttonous eras of massive growth and unfounded development, and return to enjoying a more reasonable pace of sustainable economic changes.

In the big scheme of things compared to other nations (e.g. Zimbabwe's massive inflation), we're probably still doing okay. However, in the sense of a crisis for Americans, IMO, we're absolutely there. Foreclosures are running rampant; large corporations are having layoffs (e.g. HP); lots of other businesses have implemented hiring freezes; many people's retirement accounts have dropped by 20% or so; and this stupid bailout will likely devalue our currency even more. This is reality - or at least reality in my little pocket of the country; I can't imagine it be so much better elsewhere.

As for travel, I believe air travel will get more expensive based both on decreasing competition as airlines fail and the price of oil. Is it going to keep me from traveling? No - at least not until my google-foo cannot find me decent airfares. YMMV.

Speaking as someone whose bank is probably going under this week... poor National City, I liked them...

I think the first thing to realize when it comes to the US dollar versus others is we are facing a global recession right now- in fact, if you look at the numbers, the USD is actually gaining on the Euro. Oil dropped $10 today, some are predicting it will go down as far as $20/barrel- I'll believe it when I see it, but it'd be nice for any world travelers out there right?

Of course, we also need a bit of historical perspective here everyone- back in the 1970s my dad once got a loan for 20%, and back in the Great Depression my grandparents literally had nothing to eat at times. Times may get tough but compared to how things have been we're still in pretty good shape, even from just a few relative years ago.

quote:

Oil dropped $10 today, some are predicting it will go down as far as $20/barrel- I'll believe it when I see it, but it'd be nice for any world travelers out there right?

No. $20/barrel would kill mean massive layoffs where I live. Many of the projects my employer is working on have break even points between $50 and $100. I'm hoping for it to stabilize in the $75-$85 range. The environmentalist in me also doesn't want it to go too low.

Anyway, back on track. Yes, I hate how panicky people are getting. It's a recession. It's not some new-fangled, never happened before event. Unemployment is not 25%, and average wages are not down 42%, both of which have happened before. Yet somehow people lived through even that and came out stronger for it.

Myself, I'm expecting that the worst will be similar to the early 80s, when there was a nasty recession for about 3 years. And I'm ever optimistic. Even an 80s style recession would be worse than most recessions, so it may well not even be that bad.

i actually think because of the world's economy, travel will become even cheaper than ever before...think about it, markets go down, cities start to feel the pressure, and a good way to get money back in to the cities is by travelers and tourists...I mean I just found a great flight to Europe during the holiday season through new years...was it cheaper 5 years ago, probably, but still was a great price, budget airlines are popping up all the time and even if they go under there are plenty always coming along and when they start out their prices are dirt low to undercut the rest...hostels are still cheap, food is generally still affordable in most places throughout the world...and for americans, canadians and australians traveling, their respective currencies are picking up ground on the Euro and pound, I know the USD certainly is...SEA, Africa, and parts of south america, eastern europe are still cheap...you can still get great all-inclusive vacations to the carribean, cruises are still very affordable, shall i keep going?

and just wait till teleportation is invented, OH yea, you want to go to Alpha Centarii, ZAP, you are THERE

This is nothing folks... absolutely NOTHING

Soon the stars will be our playthings

It's lovely to hear people being so optimistic, and when it comes down to it, the people that are optimistic probably have sufficient assets and financial stability to ride out the crisis over the next few years. Of course, things are going to get much worse before they get better, and in terms of travel, what we'll see is a slowing down and reversal of the trend that made travel possible for more people from different financial positions.

Flying WILL become more expensive, Oil won't be getting that cheap and airlines will continue to raise fuel taxes. But, we shouldn't be flying short-haul anyway as it's one of the more ineffective methods of travel up there with driving a hummer by yourself. So hopefully people will get the hint and add more overland to their trips, rather than flying from place to place.

The US balance of payments deficits are edging towards a crisis point, no matter who ends up president, it's not going to be pretty. It will be harder to travel on the dollar, but still very possible, as people have noted, cheaper places like South America and Asia will still be affordable, but not the same extent. The trade deficit has been hidden by blank cheques in the form of financial capital, the unsustainable economy is nearing its end.

Essentially, travel will decrease in availability to the average person, but as has been noted, that never stopped lots of people.

Em

actually i'm being optimistic with 84K in law school loans accruing interest everyday, but hey that's just me.

quote:

Originally posted by Travel4Life:
the world is on the brink of cataclysmic change... preparation is pointless, go on with your plans and off yourself when shit truly hits the fan (well, at least that's what I'm going to do)

Wow how positive you are.
Travel and learn to be a better person.
Don't be about the money.
Be about the life.

I've been studying this financial crisis for several years, in fact, it is one of the reasons we're doing RTW (Which is really more "we're going to travel full time" rather than a trip.)

It wasn't hard, with a basic study of economics, to predict what was going to happen, though exactly when is always hard to pin down. I knew the housing bubble would burst, but expected it in 2005 rather than 2007.

What we're seeing here is a very serious crisis. Its not just the news blowing it out of proportion.

We are not in a recession, we are in a depression. We have had depressions in the past, that's true, but for much of this countries history the financial system was based on gold and silver. Gold and silver a precious and do not come from a printing press. This means that there was always a floor under how bad things could get. Then in 1913 the federal reserve was founded, the issuance of fiat currency caused a boom, the insiders got out early, then they were able to buy up good businesses cheap after the 1929 crash. Then the president confiscated all the gold- or tried to-- esentially removing the floor from people's ability to pay for things (either they turned in their gold for worthless paper, or the kept their gold but would be criminals to use it to buy necessities) and the great depression was a result.

This time around we're experiencing heavy inflation-- around %20 per anum. (The government has stopped issuing key metrics, but most government economic metrics have been manipulated into meaninglessness for over a decade anyway.)

Growth in the economy is negative, and has been for over a year. This meets the definition of a depression. Its negative in real terms because, while even the optimisitic government numbers show positive growth, that growth is far below inflation (Even below inflation as it was under Clinton which was around %8 a year, only then there was a lot of real growth.)

The result of this-- as "Helicopter Ben" has promised is the intention of the Federal reserve to inflate its way out of any crisis. So ,when major banks start failing, the fed structures "takeovers" and then guarantees bad assets with money they will print. When %50 of the banks in the country go under-- in part due to feds asinine low reserve requirements-- the FDIC will long since be bankrupt (Another incentive for risktaking- the FDIC premiums do not reflect the risks being taken by the bank, thus the fund is essentially bankrupt already.) All these failures will be underwritten by the government.

And they won't do it by raising taxes or any other honest way. They will do it by inflation.

Are we going to expderience zimbabwe like inflation? The only answer to that is, absolutely yes. The clarifying question is, will it be due to this crisis (or the several other similar crisises that will be coming in the next 6-7 years) or not. That I don't know-- but once addicted to printing money to get out of problems, the government never gives up that power, and the ultimate result of that is always-- absolutely always-- hyperinflation.

Its happened in the USA twice already-- in fact, every time the US Government has used paper money, its printed it into worthlessness.

That we made it almost a century without having a hyperinflation is the anomaly.

But even if we don't have a hyperinflation, we are experiencing very significant inflation and its going to get worse. The "$700B Paulson Plan" alone is effectively %7 inflation for this year. That is to say it will take %7 monetary inflation for 2008 to pay for it.

Economics really is a science, and it can make predictions. Unfortunately most of whats passed off as economics is no more sound economics than Marx's economic theories in Das Kapital. In fact, much of what's passed off as economics is literally socialism justified using keynsianism. (Which doesn't work any better, but its got elaborate theories. And in the end it was a sham anyway, as keynes said that "via inflation the value of a country can be stolen and not one man in one hundred will realize what is happening to him." )


Anyway, long story short--

The US economy is hollow-- all manufacturing overseas.
The US Government is irresponsible-- irregardless of who gets elected, this kind of manipulation for insider profit has been going on for 70 years.

The US is in for a very bad time, probably hyperinflation a lot sooner than people think is possible, but at the very least, much worse than the 1970s.

You cannot sustain an economy where you make nothing and consume everything by paying for it with exports. -- and here's a point I should have made earlier-- our primary export is dollars. We've had low price inflation because the rest of the world has been happy to take our dollars and use them as a reserve currency. We are a debtor nation. When people no longer want our dollars, we're going to experience about 40 years of accumuluated inflation in the course of about 9 months. Once the tipping point is reached they will scramble to get out of the dollar ASAP, flooding the market, and giving us the effects of hyperinflation -- likely the result of government obligations that are triggered by price increases will cause the government to cultivate this hyperinflation further by printing massive amounts of money.

The rest of the world has not been living high on the hog (excepting western Europe, they're going to have it worse) and will generally do better.

Canada will likely do quite well during this situation as the country has massive natural reserves and an economy based on natural commodities.

Mexico will do poorly as the flows of dollars that are sustaining it become worthless, or at least worth less.

Panama will likely do great- its already the expat nation of choice for capitalist venezualans. While panama may use the dollar currently, it has no central bank, and uses the dollar by default. When the dollar hyperinflates they will switch to another currency. My bet: The yuan. China's relationship with panama is very strong.

south america will probably boom, especially in argentina. Many americans and even more europeans will move there. They shouldn't have another currency crisis, having just had one, and having a more solid economy than the USA.

Eastern Europe will suffer but not do too bad, there will be a fair bit of growth and the disparity between eastern and western europe will likely go away.

asia Asia is going to boom. This is china's century, and if they play their cards right, all of asia is going to be a massive boom economy-- it might even get Japan growing again. But if not, Japans going to be the exception here.

These are just my thoughts in broad strokes. Due to the complexity and extent of what's going on, I've had to skip over stuff. (And still this has ended up being quite long.)

If you're interested in real economics perspectives on the current crisis, visit: The Bailout Reader http://mises.org/story/3128

For a good article on the nature of money: Money: Its Importance, Origins and Operations http://www.mises.org/story/3122
or the really short, free, book: "What has the government done with our money?" also by Murrey Rothbard http://www.mises.org/money.asp


The american economy and lifestyle are going thru a fundamental shift. One as significant as the great depression and WWII. But this one is not likely to leave us off stronger. We have high tech industry, but that's about the only spot where americans are competitive now, and we are going to have to pay for our fiscal irresponsibility-- both governmental and personal.

We're about to be forcibly realigned.

solutions
Buy gold, silver, palladium and platinum. But one ounce bullion pieces, and I suggest finding a depository outside the USA to store it. (Remember in the 1930s they confiscated privately owned gold and it was illegal to own gold bullion at all until the 1970s. This is because government doesn't have your interest at heart, only its, and gold is the antithesis of paper money.)

Get out of dodge-- the next several years are going to be a good time to go see the world, rather than hang out in the USA wathcing it get forcibly realigned.

But I digress.... I got sidetracked there. The price of travel, in real terms, will likely go down. A global financial crisis means that the people who are in debt up to their eyeballs have less "disposable" income to spend and the travel industry will lower prices to try and keep afloat. This will be good for us.

But these "lower prices" will be in real terms-- eg: in relation to an objective measure of value, such as gold or silver.

The euro has the same problem as the USA, except instead of having once central bank inflating to deal with crisises, you have 7 or more, all of whome can print euros to pay off their governments debt, and have more incentive to do so because the cost of that inflation will be borne by the rest of the European Union.

This is why I recommended bullion-- because there is no prudently managed currency in the world anymore. Even china is basing its currency on other currencies (with a peg) which is either going to make them suffer, or make them inflate (while keeping the peg the same). It used to be that the swiss franc was backed with swiss gold, but this is no longer the case.

So, here's an important point-- the Euro and the Dollar can go into the toilet together. And all the while, US government "Economists" will be cheerleading a "Strong dollar policy" and pointing to the fact that the dollar made a daily or weekly gain on the euro, or whatever... ignoring the fact that both are circling the toilet bowl together.

This is why the gold bugs are so set on gold. (And the silver bugs on silver. They think silver will outperform gold fora variety of reasons.) Best advice is, if you have small amounts of money to put aside, buy silver, when you have $1,000 worth, buy an ounce of gold. (Or platinum - boy is that metal on sale right now). Palladium is a bet against US - Russian relations as they control much of the market, but its harder to find. Platinum is generally the most compact form, but its also less popular than gold. Any of these or any mix, will be safer than dollars for the next decade.

I can't speculate on other currencies. I once wanted to see how much gold the US government had backing the dollar, so I pulled a Federal Reserve (the St. Louis branch) annual report. I found there was no gold. They listed gold, but all of it was "gold certificates" (which means they traded the gold to a bank which sold it and theoretically owes them the gold back, but obviously will never pay since the fed backs the bank in the first place.)

Even worse- many foriegn countries, when you look at their equivilent annual report, you'll find not even the false promise to pay gold, you'll find federal reserve notes. EG: Those green pieces of paper we call dollars. If a gold certificate is a false promise to pay nonexistant gold -- then the federal reserve note is a false promise to pay nonexistant nothing. It has even less intrinsic value.

These banks will be dumping dollars when the panic sets in, but what will they use them to buy? Some, like china, are using their dollars to buy resources - oil, natural gass, metals, etc. But many of these banks will buy gold, because they don't want to get caught with no gold in their vaults when the dollar goes up in smoke.

Thus the historically sleepy gold market is going to see its highest demand at the very point where the US dollar is seeing its lowest.

Does this mean living abroad will become more of an economic option as the financial system is sorting itself out?

Lifes for living, just contiue with your travel plans and have a great time planning and travelling.
Good luck and keep safe.
Jean